INSURERS EXPOSED TO PAYING INTEREST FOR DELAY
Lee v IAG[1] is the first Canterbury earthquakes decision to give substantial guidance on interest for payment delay.
Both the Judicature Act (for proceedings pre 1 January 2018) and the new Interest on Money Claims Act give the Court the power to decide when interest should apply to insurance monies owed to an insured party.
The starting point is to identify from when can the insurer be said to be default of its obligation to pay.
The Court set out some of the key factors, noting that “every case turns on the individual insurance contract and the facts. Insurance practice will be relevant but not decisive.”[2]
Importantly, the Court confirmed that interest can be available from a date prior to the filing of proceedings.[3]
The Court observed that “there is a well arguable case that a reasonable time to assess the claim must be allowed before it can be said that the insured is wrongly without its money, and the insurer wrongly benefitting from that money.”[4]
However, noting the other side of the same coin, the Court also noted that interest may run from the date of the loss or damage. The Court particularly referred to situations where the insured needs to quickly replace the loss. The Court held “the loss or damage is immediate and although it may take time to investigate and assess, the economic effect of loss or damage is immediate. That may influence an award of interest from that date.”[5]
The starting point when considering from which date to award interest is the date of loss. The Court recognised, however, that this may not be “necessarily the end point for assessing interest” because other factors may mitigate or justify delay in the running of interest.
Statutory interest is an issue that particularly arises in indemnity insurance policies which impose a payment obligation. This is quite different from a reimbursement obligation which is more often a feature of replacement insurance policies. However, the same principle applies to both: interest is a live issue once the obligation to pay arises – but the timing of that obligation will be quite different between indemnity insurance contracts and replacement insurance contracts.
When insureds are settling their claims they should be alert to the issue: have I been kept out of my money, and has the insurer wrongly been benefitting from it?
Should you need any assistance with these, or with any other Dispute matters, please contact Paul Cowey at Parry Field Lawyers (+64 3 348 8480).
[1] Lee & Or v IAG New Zealand Limited [2018] Llyod’s REP. IR 345
[2] At [86] (a)
[3] At [86] (d)
[4] At [86] (2)
[5] At [86] (f)
